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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
These appeals of the revenue arise out of the order of the Learned Commissioner of Income Tax (Appeals) -12, Kolkata [ in short the ld CITA] in Appeal No. 22/CIT(A)- 12/Kol/Circle-40/2015-16 and 121/CIT(A)-12/Kol/Circle-40/2015-16 dated 19.09.2016 against the orders passed by the A.C.I.T., Circle-40, Kolkata [ in short the ld AO] under section 143(3) of the Act dated 19.03.2015 and 03.12.2015 for the Asst Years 2012-13 and 2013-14 respectively. Both the appeals are taken up together and disposed off by a common order for the sake of convenience.
The only issue to be decided in these appeals is as to whether the ld CITA was justified in deleting the disallowance made u/s 14A of the Act read with Rule 8D of the Rules, in the facts and circumstances of the case. The facts of Asst Year 2012-13 are considered for adjudication and the decision rendered thereon would apply with equal force for Asst Year 2013-14 also except with variance in figures.
2 & 2385/Kol/2016 M/s. Assam Bengal Carriers A.Yr.2012-13 & 2013-14 3. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of transportation, retail petroleum product dealer, financing and investment. The ld AO on perusal of the books of accounts of the assessee in the course of assessment proceedings observed that the assessee had incurred expenditure during the previous year 2011-12 in relation to income which is not includible in the total income. The assessee voluntarily offered a sum of Rs 13,706/- u/s 14A of the Act, being 1% of dividend received in the return of income. The assessee was asked to offer his explanation in this regard and in course of the hearing, the ld AO noted that the ld AR of the assessee admitted the fact. Accordingly disallowance u/s 14A of the Act was worked out by the ld AO by applying all the three limbs of Rule 8D(2) and worked out the disallowance of Rs 39,59,976/-. The ld AO finally disallowed the figure of Rs 39,46,270/- ( 39,59,976 – 13,706) in the assessment.
The assessee stated before the ld CITA that the investment in shares of ABC India Ltd is a strategic investment and hence the same cannot be considered for disallowance u/s 14A read with Rule 8D of the Rules. It was stated that 1% of dividend received has been offered u/s 14A of the Act voluntarily only to avoid any dispute on this issue. It was further submitted that the investment in ABC India Ltd is a strategic investment which was made to remain in control in said group company. The ld CITA observed from the records that some partners in the assessee firm are also directors of ABC India Ltd and the said company itself is a partner in the assessee firm. Accordingly he accepted the strategic investment made by the assessee and accordingly fully deleted the disallowance of Rs 39,46,270/- u/s 14A of the Act. Aggrieved, the revenue is in appeal before us.
We have heard the rival submissions. We find that the assessee had derived dividend income only from the following shares in Asst Year 2012-13 :-
3 & 2385/Kol/2016 M/s. Assam Bengal Carriers A.Yr.2012-13 & 2013-14 ABC India Ltd Rs 13,63,828.50 Joonktollee Tea & Industries Ltd Rs 750.00 Pilani Investment & Industries Corpn Ltd Rs 5,625.00 Premier Ltd Rs 405.00 -------------------------- Rs 13,70,608.50 -------------------------- Out of the aforesaid investments, the ld AR agreed that only the investment made in ABC India Ltd would be strategic investment and other investments are not strategic in nature. We find that the ld CITA had also given a categorical finding to the effect that investment made by the assessee firm in ABC India Ltd is a strategic investment . This fact has not been controverted by the revenue before us. It is already settled by the order of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141 (Kol ITAT) wherein it was held that only dividend bearing investments must be considered for the purpose of disallowance u/s 14A of the Act read with Rule 8D of the Rules. We find that the issue of exclusion of strategic investments for the purpose of disallowance u/s 14A of the Act has been decided by the co-ordinate bench of this tribunal in the case of DCIT vs Binani Industries Ltd reported in 178 TTJ 658 (Kol) dated 2.3.2016 ; DCIT vs Selvel Advertising P Ltd reported in 37 ITR (Trib) 611 (Kol Trib) and Harbanslal Malhotra & Sons P Ltd vs DCIT in (Kolkata Tribunal), wherein it has been categorically held that the strategic investments are made by an assessee only in order to gain controlling interest in the said company and any dividend earned thereon would only be incidental in nature and hence the same shall be outside the purview of disallowance u/s 14A of the Act read with Rule 8D of the Rules. Respectfully following the said decisions, we hold that the investment made by the assessee in ABC India Ltd, being a strategic investment, shall be outside the purview of disallowance u/s 14A of the Act. However, the other three investments shall be falling under the purview of disallowance u/s 14A of the Act read with Rule 8D of the Rules. Hence the ld AO is directed to consider the disallowance thereon after excluding
4 & 2385/Kol/2016 M/s. Assam Bengal Carriers A.Yr.2012-13 & 2013-14 investment made in ABC India Ltd and including other dividend bearing investments only. Accordingly, the grounds raised by the revenue are partly allowed.
In the result, the appeals of the revenue are partly allowed.
Order pronounced in the open Court on 07.07.2017